Interview with Terry Ryder

Reporter Stephen McDonell interviews Terry Ryder, specialist property journalist who writes for magazines and author of several
books on the topic including Buyer Beware.

The following is an edited interview transcript. Due to the possibility of mis-hearing, the ABC cannot vouch for its accuracy.

Terry Ryder, maybe first could you just give us a bit of an idea of housing unit prices at the moment. If you think that, in our major cities especially, housing unit prices are at a level they should be?

Apartment prices I think as a general comment are grossly inflated. It used to be the case that developers priced their units according to what the market will pay but these days they don't do that, they work out what it costs, add on healthy profit and then charge pretty much what they like and they figure they can get away away with it through slick marketing techniques which largely these days include taking their road show interstate or up to Asia and selling them at inflated prices.

And can they get away with it?

So far they have. Nobody's taken any action to stop them and people are lining up in their thousands to actually pay those prices.

Why do you think that people are prepared to pay those inflated prices?

Well I think firstly there's an awful lot of fear being created, firstly by the Federal Government, about the fact that the we have an ageing population and the country isn't going to be able to support people in their retirement, therefore we have to get out and invest ourselves to provide for ourselves in retirement and this has created this property investment fervour that's happening out there for the last couple of years because the ordained method of creating wealth in this country is through real estate investment.

And people are scared stiff they're going to have nothing left for their old age and so they think I've got to get into real estate now to look after myself?

That's right, they think that the way to provide for their retirement and for their families in the meantime is through real estate investment and what that has done, it has brought out of the woodwork every crook and shonk in Australia to exploit that passion and they're doing it very successfully. Nobody's actually taken any action to stop them.

How widespread would you say this marketeering is?

Marketeering is just one of the scams that the crooks are using to exploit people's passion for property investment. I think it's enormously widespread. It's far more widespread than than anyone realises. It's commonly associated with the back centre to the Gold Coast but in fact it's part of mainstream real estate down town Surfers Paradise, downtown Brisbane, the centre of Melbourne, throughout Sydney. It's very widespread.

Can you just give us an idea of what you think is going to happen in the near future regarding unit values?

Well I think there are two major factors. One is that people have been paying inflated prices for new units. When they come to resell they're selling at a loss in many cases. What's going to exacerbate that is the fact that we have a chronic oversupply of apartments in all the major markets in Australia - central Melbourne, central Brisbane, I think also central Sydney and certainly downtown Gold Coast, so those two factors working together, and the fact that the real estate boom has been so intense and so prolonged, means that I think we're facing the mother of all downturns and there's going to be an awful lot of people suffering, there's going to be quite a shakeout.

So how many people do you think would have bought overpriced units that actually don't realise that they've been stung yet?

I think it's impossible to accurately estimate it but I would put it in the tens of thousands every year.

What's significant about us seeing these losses at this point in time?

What's significant about the fact that people have been reselling their new apartments at significant losses in Melbourne, in Sydney, on the Gold Coast and in Brisbane is that they're selling into the the greatest real estate boom that Australia's probably ever seen so one can only imagine the sort of losses they will take when they sell into the downturn that will inevitably follow.

So it's only going to get worse?

It's only going to get worse particularly as we're still building thousands and thousands of more apartments.

How big do you think the rorting is across Australia in terms of property rorting at the moment?

I think property rorting in various manifestations is enormously widespread. We have so many different scams in the real estate industry. You could, you could count them 10, 12, 15 different definable scams operating right across the country. The marketeers are only one of them. You know, tens of thousands of Australians are being ripped off every year, not by small amounts of money, we're talking about 50, $60,000 that people are overpaying for apartments for example.

Now if as you say people right across the country are selling their units or starting to sell their units at huge losses, why aren't we reading about this in the media?

I think particularly the newspaper industry is constrained from being honest about these issues because they have a vested interest in their bottom line through real estate advertising. There are a lot of publications throughout Australia who will not write anything that's unpopular with real estate agents, the people that they see as the source of their rivers of gold, the real estate advertising; therefore we see significant publications talking up the market constantly, they have a vested interest in keeping this boom going so we're not getting honest coverage from them.

To what degree do you think that the property gurus and the get-rich-quick seminars are artificially pumping up the market?

I think they're a very significant factor in keeping the boom going. These marketing techniques are allowing developers to sell products for which there's no genuine demand. It's allowing them to keep building new high-rise apartments in a market that's already oversupplied and they be able to do that because they're going to distant locations and selling to people who don't know that the markets they're buying in are oversupplied and who don't know that they're paying inflated prices.

Do you think that the developers know that the demand isn't really there?

Of course they do, they know exactly what they're doing. They're wilfully complicit in visiting a scandalous fraud on ordinary mum and dad investors throughout Australia.

To what degree do you think that the developers are deliberately using the seminars and the gurus to sell their product?

In an oversupplied market it's become commonplace for developers to use seminars interstate and in Asia to sell their products because they know that local buyers won't buy in the oversupplied market. Local buyers know that the prices are inflated, so they go to distant locations. They go out west to the mining towns. If they're selling Melbourne product, they'll go up to Sydney and for Sydney buyers, Melbourne apartment prices seem cheap, or they'll go up to Singapore or Malaysia or Hong Kong and tell outrageous lies about the state of the market in Australia and people will buy site unseen and it's through using those sorts of techniques that they are able to prolong their construction boom and their profit boom in an oversupplied market.

Now you were telling me before that there are really two different types of seminars, can you just explain what both those types are.

Well we have what I call the get-rich-quick guru seminars where people run an ad in a paper and which promises to show ordinary Australians how to become millionaires in double quick time and their modus operandi is to start with a free seminar which gives people a a taste of the possibilities - they might be able to become a millionaire in three years time starting with nothing - and then at the end of the night hit them for 5, 10, $15,000 to attend a longer, more detailed seminar. So that's one type of seminar, the other type which is catching a lot of Australians is the type run by the developers through the marketeers where they will, if they're marketing downtown Melbourne apartments, they'll run a seminar in Sydney and Sydney people will come along to that and will be sold the virtues of negatively geared apartment investments and then they will follow up with a phone call and offer to fly people down to have a look at some of their products and by the time they go home at the end of the night, they've paid too much for an apartment.

At the get-rich-quick seminars, what do they say to people are the strategies to make money?

Most of the strategies that they ultimately teach the people, if you go to the next stage and pay $15,000 for the three day seminar, are pretty much unusable by 99 per cent of the population. You can't use these strategies unless you're prepared to to break the law, unless you're prepared to exploit the weak and vulnerable in society and unless you're prepared to take huge risks, primarily in borrowing huge levels of debt to buy real estate. So, for most of us, the strategies you've paid $15,000 to learn, you actually can't use because you're not a scoundrel.

When you say that they potentially involve breaking the law, what do you mean by that?

I mean that, at some of the seminars that I have attended, the guru has been advocating strategies that push the envelope of legality. For example, they suggest exploiting valuations to hoodwink banks into lending you more money than they otherwise would.

So artificially higher valuations?

That's right. There was one who taught the strategy of contacting six valuers and asking them to give you a ball park figure for the property that you're thinking of buying and they'll each give you an estimate before you actually appoint them to do the job officially. You actually appoint the valuer who gives you the highest estimate and the valuer who gives you the lowest estimate. You use the lowest estimate sworn valuation to take to the the vendor and say this is the valuation, you're asking too much, you take the highest valuation to the bank and say this is what it's worth... so you're perpetrating a fraud at both ends and this is what they teach at these kinds of seminars.

What do they say about the kind of people that should be targeted in terms of selling flats?

They very much advocate exploiting the weak and vulnerable. Real estate investment is in one sense about buying well and the get-rich-quick gurus advocate buying extremely well by finding people who have had a downturn in their circumstances. You look for an elderly woman who's been recently widowed and may need to to sell her house which is now too big for her to manage and she doesn't know what it's worth, you exploit that. They advocate looking for someone who's recently been in a car accident as being rendered a quadriplegic and can no longer manoeuvre around the house so they need to sell it and they probably need to sell it fast and cheap. You exploit that. They advocate talking to your accountant to ask them whether they know anybody who's in dire financial circumstances, may be recently declared bankrupt and has to sell real estate fast and cheap. You find those people and exploit it. That's the kind of strategy that they're teaching and that's why I believe that that most people can't use that strategies cause most people aren't crooks.

I understand that the developers even, to some degree, run their own seminars. Is that the case?

Yes they do. It's quite common for major development names to run their own seminars. Central Equity do it, Meriton do it, I've been to seminars run by Forrester Kurts and, at these seminars, they extol the virtues of buying negatively geared apartment investments but the end objective always is to sell their own products to people.

And what's wrong with them having these seminars?

Well I think that what they're recommending to people is highly dangerous because what they're recommending that people do is go out and borrow an awful lot of money. For example I went to a Forrester Kurts seminar in which they advocated as the prime strategy that we should all go out and buy four apartments - their apartments of course - and that entailed taking on about a million dollars worth of debt each and for the people sitting in the audience, ordinary mums mums and dads, that's a disastrous strategy. If there's a downturn in the market, or downturn in their circumstances, it's it's like a house of cards, it can all come crashing down and be a financial disaster from which these people will never recover. In addition to that the scenarios that they put up on the screen, the negatively geared scenarios, the spreadsheets which purport to explain how it will all work. For example, they will construct an argument that $20 a week will buy a $300,000 apartment and they do that with various smoke and mirrors techniques which rely on various, very, very optimistic assumptions and, if any one of those assumptions doesn't come to pass, it's a disaster for the investor and this is the sort of thing they're advocating to people.

When you went along to that Forrester Kurts seminar, did you attempt to ask them anything about this, to explain their spiel if you like?

I did, I asked them a lot of questions after the seminar and I found that they were completely unable to answer any of those questions or unwilling to answer them because I think they are used to people sitting there quietly and meekly in the audience and believing what they're told and then going out and buying a Forrester Kurts apartment as a result of what they're told in the seminar.

What did you ask them?

I asked them to explain their figures; I asked them what their qualifications were for giving this kind of financial advice to people and, of course, they don't have any qualifications, they're not required to in fact. There's no federal regulation requiring them to have any qualifications or licences to stand up in front of a crowd of people and advise them to go out and take on a million dollars worth of debt to buy four Forrester Kurts apartments.

And how did they respond ultimately to your your questions?

I never got any answers to my questions. They ducked and weaved for a long time and promised responses but the responses never came through and I never really expected responses because once I think a consumer starts to ask those difficult questions. They no longer want to deal with you, they want to deal with the meek and mild mums and dads who will sit there and pretty much do what they're told.

I think you were saying at some stage that, even when you were asking these questions, they were still trying to flog you property, can you explain that?

That's right, I wanted to ask questions on the spot before I was obviously willing to commit to to making any serious purchases and their response was well I don't have the answers for you, I'll get back to you on that but in the meantime do you want to buy an apartment.

So, in terms of these sort of developers running their own seminars, do you think that it's going to be dangerous for them in the near future? I'm thinking, you know, these are respectable development companies in Australia. For them to be running seminars which potentially go wrong, I mean, isn't that going to damage their reputation in the long run?

I think in the long run it will damage their reputation. It may also result in them being sued by people who might argue that: "you gave us advice, we followed your advice and it's turned into a financial disaster for us, therefore we're calling you to account".

To what degree do you think that these major, respected development companies are doing the same thing as marketeers effectively: they're just a bit less brash about it? Would you agree with that?

I do. There is a perception that marketeering is confined to the sort of seedy underbelly of the real estate industry, it's like some mafia element out operating outside the industry and they are primarily peddling cheap and nasty townhouses out in the the distant suburbs but in actual fact mainstream big name developers are using the same techniques to flog mainstream real estate for example downtown Surfers Paradise by the beach, Broadbeach on the Gold Coast, Main Beach on the Gold Coast, central Melbourne, central Brisbane. It all adds up to the same thing, people are being seminared, people are being induced to buy distant investments at inflated prices and, if you look at the resale results, at significant buildings in all of those locations, you see people who have bought off the plan, reselling years later at huge losses.

Can you just give me a list of all the different professions who have been involved in marketeering, I mean who it takes for the whole thing to work?

Yeah, for a marketeering sting to work it's a very elaborate operation and it involves a whole range of professions. You obviously first of all have a developer, then you have a marketeer, you often also have real estate agents as such involved, you normally have a financial planner who will give what appears to be quality independent advice to the to the victim, you will have a lawyer who's on the payroll lined up, you will have a lender lined up to provide the finance on the spot.

Like a bank?

Very much like a bank, in fact pretty much all the major names in Australian banking have been strongly implicated in marketeering practices. The evidence is very strong that they not only went along with it but they actually proactively facilitated some of these marketeering scams for their own profits.

So, is this right, you're saying that lawyers, valuers, bankers, real estate agents are all colluding so this marketeering can go on?

That's right, all of these professions and perhaps one I haven't mentioned to this point also valuers. For these things to work the developers and their marketeering teams need to find a dodgy valuer prepared to write a valuation that supports their asking price so they can show that to the victim, say here's a sworn valuation that shows that you're paying market price. So yes, lawyers, valuers, real estate agents, lenders, they're all involved and they're all earning huge fees to turn a blind eye and to switch their consciences off.

What proportion of all valuers have been involved in marketeering would you say?

I think it's a very small percentage. I think the valuation profession by and large is a very honourable and ethical one, most of the valuers I know are honest and are horrified at what's going on, but in any profession you can usually find a bad element and I don't think the marketeers have found it too difficult to find sufficient numbers of shonks in the valuation profession to make all this work.

Is there any reason why the valuers are able to overvalue properties?

Well their loyalty has been bought. You know, they're paid to write a certain valuation at a certain figure and the shonky valuers are happy to comply. There are cases where complaints have been brought but, as in most cases in the real estate industry, the people who hear the complaints are usually their mates. You know if you complain about a real estate agent, the tribunal hearing it will be made up of real estate agents so if you complain about a valuer, there will be a valuer's registration board of which most of the members are valuers and they don't want their mates to be prosecuted and they don't want their profession to be brought into ill repute so they usually whitewash the complaints.

Is there some way that these valuers can be more highly regulated for example to stop this happening?

I don't know. I mean, I think I think the laws exist, I think what what we're lacking is not the legal clout to do, what we're lacking is the will of the the regulators. I think the biggest problem in all of this is the lack of regulation by federal authorities in particular. These people are able to run amuck and and nobody takes action to stop them. It's very rare to see the ACCC or ASIC actually taking action against any of these crooks. I mean they've been doing the marketeering scams on the Gold Coast for 10 years and we currently have a prosecution under way involving a major bank, lawyers, agents, marketeers, developers but that's the first time in 10 years that anyone's taken action against this.

So, is this right, you think that ASIC and the ACCC have the power to pull this up but they just haven't been using that power?

For some reason real estate seems to just slip through the cracks of federal regulation constantly. It seems to be made a special case for exclusion for example we had 12 months ago they brought in the Financial Services Reform Act under which there's now very, very stringent and heavy regulation of anybody who provides financial advice to an investor, anybody who sells a financial product, be it shares or managed funds or superannuation, anyone who does any of those activities is very closely regulated now and has to have the appropriate qualifications and licences but they excluded real estate and I think it's valid to ask why do they exclude real estate? I think there are answers to that question but nobody's asking the question.

Now, what about the role of the banks: how crucial is that?

I think the role of the banks is paramount in all of this. The banks have the power to stop all these scams stone dead in their tracks. All they have to do primarily is hand a piece of paper across a table to the poor unsuspecting victim who is their customer, their client who's come to them to borrow funds to buy an overpriced piece of real estate. The bank typically will get a valuation to make sure that they're protected, that valuation will tell them that their client, the borrower is paying too much but they won't tell them and they won't show the valuation to them even though that client is paying for the valuation, they're charged a fee for that valuation. The banks know that they're paying too much, they don't care because they're covered and they just want to write business so the banks could stop it all stone dead but rather than stop it, they actually get actively involved. They're proactive in facilitating these scams.

What do you mean by that, proactive?

I mean they they get involved with with developers and actually refine the techniques to make it all work nice and smoothly and we've seen it with the budget housing estates that use the no deposit, we'll pay the stamp duty and the legal scams which sell overpriced houses to people. That can't work unless a bank gets actively involved and the bank protects itself from those deals going bad as they often do by insisting that the developer pay into a slush fund, for every sale they've got to pay 3.5% for example into a slush fund, that's there for the bank to take money out of if one of the deals falls over and that's just loaded onto the price of the house. Now the banks, they don't just play along, they actually get involved proactively and refine these processes as they have with the marketeers.

Now in terms of the banks dealing with their customers who've come along to get a loan, to buy one of these units, why is it in the bank's financial interest to lend money to a customer who'd be buying an overvalued unit?

Well the bank wants to write business, they want to write loans and they make a lot of money out of writing loans and they will lend money to anyone as long as they feel that they're covered if it goes bad and in the case of most of these scams, they're selling primarily to investors which means they have the the borrower's own house as collateral as well as the property they're buying so they're paying too much for the property but the bank's protected because they've also got their house to fall back on and they're willing to take someone's house if it comes to that. And then in the case of the people who are buying houses for the first time, the no deposit, we'll pay the stamp duty etc scams, the banks have the slush fund, the developer has to pay into with each sale to protect them so their arse is covered every time and they don't care that their customers, the borrowers are being sold down the shoot.

So, again, is there something that could be done about the banks in terms of the law for example?

Well I think you could you could stop it all dead very, very simply by making it law that that the banks a) have to do a valuation and b) they have to show that valuation to their client. I mean it's very simple and a very fair method and most of these scams would be stopped dead overnight by that one simple change.

Is there any reason why they don't show the clients the valuation, the true valuation?

They don't want the clients to know that they're paying too much. If the clients find that out, they won't proceed and the banks won't get the business.

What about the role of state governments, are you satisfied with that?

I think the role of governments generally, at all levels, needs to be called to account. There isn't sufficient regulation at any level; there's no regulation at a federal level, there is some regulation at a state government level but it's not nearly stringent enough and I believe the reason for that is that, well, firstly when there's a property boom, governments at all levels benefit hugely. At a federal level they benefit from capital gains tax and from GST. At a state government level, they have a windfall of stamp duty and land tax when there's a property boom. We've just seen the figures that the Victorian State Government this financial year will earn $2 billion from stamp duty from property sales. They don't want that to stop so they're not going to clamp down too severely on the real estate industry.

What about real estate agents? Do you do you think that they've been playing a crucial role in this, especially I suppose the way in which we've seen them linked sometimes to these seminars?

The real estate agents have been involved in the marketeering scams, particularly in Queensland where the laws were changed to try and stop marketeerers operating and, for the marketeers to continue, they needed a licensed real estate agent to be on board because you had to have a licence to sell the product. They didn't have any trouble finding licensed real estate agents who are members of the Real Estate Institute of Queensland, or whatever, to come on board and play their role and receive a fat fee for doing so.

In some cases people say that one of the things that led them to go along to a seminar in the first place was a reputable real estate agent sponsoring the event - how crucial do you think that is?

I think that's very crucial, those who ultimately run these marketeering scams don't particularly have a great reputation. They need to associate themselves with people who do have apparently a good reputation to give themselves credibility so they will involve others, like a big named real estate agency chain, to introduce them to victims.

Talking of the victims, I mean, how na´ve do you think the victims are? How are they sucked into this? From a distance, it looks like a bit of an obvious scam?

It does. I think first of all people are fearful that they won't be able to provide for their retirement unless they get out and invest in this way. Secondly, I think Australians have a passion for real estate ownership, quite unlike probably anywhere else in the world and thirdly I think a lot of people desperately want to believe that it is possible to become rich very easily through real estate investment so they're very easy to rip off. Australian consumers are just unbelievably easy to rort by the crooks in real estate.

In Shirley Taylor's case, she believed that she was going to make more than $50,000 in instant or very quick profit simply by paying to go along to one of these seminars. Do you find that unusual that she would believe that that was the case?

Well no because, you know, that's I think is a particularly tragic case, that individual case because she was motivated by desire to provide for a sick and ailing parent and also a sick child and she was facing medical bills that she couldn't afford and she thought that, if she invested well in real estate, that she could raise money to to pay those medical bills which she faced long into the future and so she was an easy victim.

How many victims would you say there might be across Australia?

God, who knows? There are so many different scams but it has to number in the tens of the thousands. Tens of thousands of new victims every year through various scams and there's new ones emerging from the woodwork every year.

Do you think that in the coming years we're going to see that number of victims getting larger as people realise they've been stung?

I think that's a very valid point because there are a lot of people out there who have been ripped off and they don't know it. They don't know it because they've bought a piece of real estate and until they come to sell it or to refinance it or perhaps look for a second investment which might result in their lender getting a valuation on their first investment, until any of those things happen, they're not going to find out that they've paid way too much: for example, for their their Gold Coast townhouse or their high-rise apartment in in Docklands in Melbourne. So a lot of people out there right now don't know that they've been marketeered. They don't know that they've been ripped off but we're going to see a lot of fallout in years to come as people do realise.

There's a bit of a cooling off period when you buy something, I mean, what's stopping people from pulling out of these deals?

The cooling off periods where they exist, they don't exist everywhere in Australia, but where they exist, they tend to be either 3 days or 5 days. Now there are people out there who were ripped off five years ago and don't know so 5 days isn't much use to anybody. It has saved some people but, by and large, it doesn't because people don't take sensible precautions. I mean nobody should buy any piece of real estate without first getting an independent valuation, which they pay for themselves, at the cost of a couple of hundred dollars and getting independent legal advice and, if everybody did that, they would be almost impossible to rip off but people don't do that because they are so slickly marketeered, so cleverly coerced by very, very clever sales people.

To what degree are these people able to be intimidated by the likes of the lawyers, the developers, the gurus?

I think when people get into real estate investment for the first time, they really are getting into an area about which they know very little and so they defer to the people they see as the experts, people tend to think of a real estate agent as a real estate expert and so they trust what they're told. If they were flown interstate to look at buying an apartment by marketeering scam, the marketeers will have lined up supposedly reputable people, like lawyers and bankers and financial planners, who appear well presented. They work for companies which have reassuring sounding names and they think they're in safe hands and they may find out later that they've been stung by some of the worst buildings in Australia.

Is it important in the case of marketeering that the victims be directed to particular lawyers, particular bankers, particular valuers, and if so why is that important?

From the marketeer's point of view, it's absolutely crucial they go to exactly the one lawyer that they have lined up. A common occurrence is for a couple to be flown from Adelaide to the Gold Coast for example on a Sunday and, on a Sunday, most of these businesses are closed but they will find, to their amazement, that there will be a representative of one of the banks sitting in their office just waiting for them to turn up to talk about their loan to buy their townhouse out in the western suburbs of the Gold Coast. They'll also find a lawyer is open on a Sunday, just for them, a financial planner is open on Sunday just to talk to them, they're all lined up and waiting. It amazes me that it doesn't occur to people that this is rather unusual but people are, basically, honest and they expect other people to be. They're trusting in nature and they don't realise that all of these people are being paid huge fees, far more than they would normally earn in their normal business operations, to be there on that Sunday and to facilitate the scam.

Can you just tell us about the the role of lawyers, is that important in all this?

If you fly interstate to buy real estate, in most states the law is that you have to have a local state-based lawyer to act for you in the transaction. That's something that's mercilessly exploited by the marketeers. They line up the lawyer for you.

It turns out to be one of their friends or someone involved?

Just someone on the payroll, someone who's willing to play along and earn a huge fee to to switch off their conscience and deliver the result that the marketeers want. Their loyalty has been bought.

And really there are not just a couple of lawyers doing this, there must be a good many?

There has to be because the scams have been so widespread. You'd need more than one or two and increasingly now we're starting to see some of them being hauled before the Law Societies' tribunals and charged with offences as a result of their involvement in some of these scams.

One of the things that's advocated by the get-rich-quick gurus is using deposit bonds. Can you explain what they advocate in terms of the use of deposit bonds?

Yes. A lot of what the get-rich-quick gurus teach is that you don't actually have to have any money of your own, you can become a millionaire real fast starting from a base of nothing. You can go from zero to hero in three or five years using their techniques and one of those is that you use a deposit bond where you don't actually have to come up with a deposit to buy an apartment. You just use a deposit bond where you can use your your bank card or credit card to buy a deposit bond for a $1,000 and that deposit bond means that you have to pay up eventually when settlement comes along. In the meantime, all you need is your credit card. You don't have to have actually have any cash; you don't have to have a deposit and, in that way, you can - with no money - buy a half million dollar apartment.

Now that sounds pretty good, what's wrong with that?

What's wrong with that: it means that, if everything goes according to plan - and the plan as articulated by the scam merchants is that the value will rise so that you will actually have made a substantial profit by the time you have actually pay up for this apartment - then, if the market falls or you lose your job or some other adverse circumstance in the economy or in your own personal life happens, you have a disaster on your hand because you've got to fork out half a million dollars which you can't afford. So we've seen instances, certainly in Sydney, where people have been induced at some of these seminars to go out and buy multiple apartments. Use your credit cards, get six deposit bonds and buy six half million dollar apartments and by the time you have to pay up, each one of them would have increased in value $50,000. You would have made $300,000 just like that: without any of your own money. This allows them to run their ads which say we can make turn you into a millionaire without any money of your own to start with. But it's dependent on everything going absolutely perfectly right and, if it doesn't, you've got a disaster and we're actually seeing the fallout of that now in Sydney.

Is one of the main problems with these deposit bonds that they get people to purchase units that they really could never afford the repayments on?

That's right, it gets people to overreach totally, take on debt that they just don't have the income to support and they don't have the assets to support and they don't have the saving record to support. These are people who would never normally get a loan to buy a half million dollar apartment.

How do you account for the fact that we've seen these media reports that unit prices just continue to go up?

There are several like explanations for that. One is that the kind of problems that I've been talking about aren't across the board: there are actually projects that are successful for people; they sell at honest prices and people, eventually, resell and make a profit as as they should and as they would expect to every time. So it's not right across the board that they're disasters, there are successes. Secondly, I think we have, by and large, a very compliant newspaper industry out there. They're writing about the successes; they're often writing articles that talk up the market but they're not writing very much about the disasters that are happening out there because, I think, they have a vested interest in keeping this boom going and keeping this fervour for real estate investment on the boil because their advertising bottom line benefits from it.

So people are still making money out of this, is that right?

People are still making money in real estate of course. I would never suggest that people shouldn't invest in real estate. Sensible, careful real estate investment is very successful. I'm merely suggesting that people should not be, for example, buying without getting an independent valuation or without getting independent legal advice. People have to be very careful about what they buy: real estate's fine but you've just got to be very choosy.

As an indication of the scale of this are we starting to see whole buildings where everybody is making a loss on resale?

There are buildings like that. I've seen figures for buildings in Brisbane, buildings on the Gold Coast, down by the beach in Surfers Paradise for example also buildings in Melbourne where pretty much everybody who resells does so at a loss and that tells us that they paid inflated prices in the first place because they're selling into one of the biggest boom markets that we've ever seen in Australia.

Do they tend to have any strategies? I'm thinking, you know, there might be one that's been resold at a profit and you could use that as a bit of leverage to show people, "oh look this works". Does that ever get done?

That gets done and usually the original buyer (at a low price) was someone associated with the developer or the marketeers themselves. Yeah.

So they sell them the unit at at a reasonable price (showing you can make money) and you can use that to onsell the other units at an inflated price, is that right?

Yeah, yeah.

When it comes to selling these units, especially people they might think "oh well we've made a loss but we've got to sell it, cop it on the chin" is there any way in which a secondary sting can be perpetrated?

There are instances where the marketeers have got a double sting. Firstly they sell to an unsuspecting investor at an inflated price and eventually, for whatever reason, that investor has to sell at a substantial loss because the true market value is much less than what they've paid and the buyer is the marketeer again. So they buy it and then they do it again. They sell the same unit at an inflated price twice.

And, I suppose, they could even keep going?

They could theoretically, they could just keep doing it.

What are the warning signs for people that there is a scam being perpetrated on them? Are there any signals that you should think "hang on a second; I should be careful here"?

Well one of the biggest signals is someone that's trying to induce you to buy something interstate or overseas. The question everybody should ask is, if this is such a good product and it's worth what you're asking, why aren't you selling it to local people? Why aren't the locals buying it? Why do you need to come down here to sell it to me? The answer to that question, invariably, will be that the locals won't buy it because it's overpriced and the market is oversupplied.

What do you think of Henry Kaye?

He is justifiably the most notorious of the the get-rich-quick set. I think he has refined the art of inducing people to pay large sums of money for bad advice to a level that no one else has quite managed in Australia. There are lots of copycats out there but he's the king of the get-rich-quick set and he's taken it to extra levels. Most of them will run a seminar and simply make money by charging people outrageous sums of money to come to a more advanced seminar and get advice on how to become a millionaire but he actually takes it further and sells them his own product.

So he sells them property as well?

He sells them property as well.

What about Mr Quinlivan, what do you think of him?

Mr Quinlivan has been dubbed "King Con" by the Queenlsand Fair Trading Minister in Parliament. He has given marketeering a bad name right around the country. He's been the biggest operator by far: he and his myriad associated companies; it's quite a network.

How extensive has his scam been at its height?

There is some substantial research on that kind of thing. In one year alone, there were 3,000 investors on the Gold Coast: people buying Gold Coast real estate who paid on average 50 to $60,000 too much. That's in one year and he's the main facilitator of that.

Do you have any idea what the total proportion of all buying and selling of units in our big cities involves investors?

There are some figures available on that. In Brisbane, in the last 12 months, 90% of sales in inner city Brisbane have been to investors: most of them to interstate or overseas investors. In Melbourne, I understand about two thirds of apartment sales in inner city Melbourne are to investors: that's a really bad sign. That's a sign that we're heading for a crash at some point because the people buying them are not people who want to live in them, they're people who are buying them as investments and hoping they can find people to tenant them but the evidence is that the oversupply is large in all of those locations and that developers and investors are having to pay incentives to find tenants.

So the tenants just aren't there?

No. The market's oversupplied. There are too many apartments and, to induce people to come in and tenant your apartment, you have to offer them a rent-free period or free white goods or free coffee for a certain period of time or gift vouchers.

The banks have made no apologies for their use of retention funds, what do you think of this?

Oh I think it's just, it's disgraceful. It's disgraceful because it's a sign that the banks know that many of these deals are going to go bad because the buyers are paying inflated prices and the buyers are people who haven't been able to save a deposit and probably haven't got the financial where with all of the discipline to service a mortgage. I think they're disgraceful because the buyers aren't told about them. The buyers don't know that they're actually paying for this: you know, typically three, three and a half percent of every sale is paid into to a slush fund and that's added onto the price and people aren't told that.

What do you think of this three-year rental guarantee we've seen lately?

There was a recent report that probably the biggest developer of apartments in Australia, Meriton, was offering a three-year rental guarantee for anybody who buys one of their Sydney apartments and this is a sign of absolute desperation. Developers don't offer rental guarantees unless they are afraid they won't be able to sell their apartments and that means that they're afraid that the market's over supplied. It was however reported in Sydney media as an act of benevolence, an act of generosity by Mr Triguboff and his company, when in actual fact it's an act of desperation.

Even an indication that the market is about to come crashing down?

I think it's a rock solid indication that the market is in dire straights and that the developers are very worried about it.

How influential do you think that our developers can be with political parties in Australia?

It is documented that some of the biggest donors to the main political parties are developers and other elements in the real estate industry and you have to wonder how much that influences the regulation of real estate in New South Wales.

To what degree do you think that stamp duty would be in the minds of state governments when thinking they should be cracking down on this?

It's absolutely enormous. I mean the windfall for state governments through the real estate boom, primarily by stamp duty, has been unprecedented and they're just, I think, rubbing their hands together with glee. They've had all this extra money they didn't expect to have and you know what politicians are like. They don't readily hand back money that's gifted to them by the community so yeah, as far as they're concerned, the real estate boom can just roll on and on.

In Queensland the laws have been changed. We hear the Queensland government saying the marketeering has now been stopped. What do you say to that?

The Minister for Fair Trading in Queensland, Merri Rose has often stated publicly that she has stamped out marketeering in Queensland. She's wrong. She hasn't stamped it out. I think she knows that. She is a member for a Gold Coast seat and she has a parliamentary office, a ministerial office, in the middle of Brisbane where most of this bad activity is going on right under her nose. If she doesn't know it's going on, she's incompetent. The evidence is very strong that marketeering continues in Queensland. I know of a number of instances where people with information have presented it to her and to her staff and they report that they just don't seem to be interested and then they go public and say we don't get any complaints and there's no evidence that it's continuing and they're plain wrong.

The laws though, are you saying that they're actually flawed?

The laws are flawed. The fact that, after 10 years of marketeering scams continuing unabated in Queensland, we haven't had a single prosecution of any of the the culprits, none of the villains have been called to account. In addition to that the marketeering scams continue: they've merely been refined and perhaps moved a little sideways. In Queensland, we now have a new form of marketeering which is in the form of house and land packages and that's become quite widespread so they haven't stopped it, there are holes. The villains will always find ways around the new laws.

What do you think then, at the end of all this, could be done to stop it: especially, I'm thinking, of governments - what could they be doing?

I think they just need to have the will to actually go after it. I think laws exist that they can use to prosecute the villains of these pieces. We have the Trade Practices Act (for example, misleading and deceptive conduct, unconscionable conduct) these tools already exist but they're not being used. We've seen the regulatory authorities prosecuting supermarkets for misleading advertising but they leave real estate alone when I think real estate would be the prime target for that kind of thing. So the laws exist, they just have to make the manpower available and go after the crooks.

How many have they caught so far?

Well, if you want to talk about marketeering scams in Queensland, nobody after 10 years... not a single successful prosecution and I think that's probably the case right across the board - prosecutions are very rare. Real estate scandals seem to slip through the cracks and the regulations constantly.